Aave pauses lending markets for 17 Ethereum-based tokens

Quick Take

  • Aave has temporarily frozen lending markets for 17 tokens and stablecoins on Ethereum.
  • This comes after a massive short position on Aave’s CRV market resulted in a bad debt of $1.6 million.

Decentralized lending protocol Aave has temporarily frozen lending markets for 17 tokens in an effort to protect itself from taking on bad debt due to future market manipulation attacks. 

Aave is the largest lending protocol on Ethereum with more than $3.65 billion in assets locked across multiple chains. Its decision to temporarily halt lending of several tokens on Aave version 2.0 was passed after governance members approved a proposal from Gauntlet Networks asking to pause assets that are considered as “volatile” due to low liquidity profiles on Aave.

The lending markets are yearn.finance, Curve DAO,  0x, Decentraland, 1inch, Basic Attention Token, Ampleforth, DeFi Pulse Index, renFIL and Maker, Enjin, xSUSHI and five stablecoins: sUSD, GUSD, RAI, USDP, and LUSD. 

The protocol will not allow users to deposit these assets or take loans with them on the platform for the sake of risk management.

“In response to recent market events and the continued contraction of liquidity across markets, this proposal seeks to reduce the risk profile across many higher volatile assets,” the proposal said. 

The proposal was passed days after a trader opened a massive short position on the Curve DAO (CRV) market on Aave that resulted in $1.6 million of bad debt for the protocol. 

Last week, a trader borrowed 92 million CRV ($57 million) on Aave and proceeded to sell the tokens continuously, causing a sharp fall in the CRV price. The trader, however, suffered a price squeeze as the CRV token price rallied. While liquidating the short position, Aave accrued a bad debt of $1.6 million. 

Although Aave stated that it had sufficient funds to make up for the bad debt, the project wants to prevent such incidents from happening by way of freezing low-liquidity asset pools.

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